Google ‘avoids SA taxes’
Fin24

Google ‘avoids SA taxes’

2014-02-11 10:52

Cape Town – Digital publishers in South Africa are battling to compete for online advertising revenue with Google, which apparently avoids paying local taxes.
 
The digital media environment is rather unique in that revenues can be rerouted via tax loopholes.

While local digital publishers have to pay tax to the South African Revenue Service (Sars) on their revenue or profits, an international giant like Google, for instance, currently transacts through an off-shore entity based in Ireland, thereby avoiding paying local taxes.
 
Google has a dominant position in the SA online market and some estimates put its current online advertising revenue from South Africa at between R800m and R1bn.

Lost tax revenue

Based on these figures, SA's lost tax revenue from Google is estimated at R140m per year in corporate taxes.

Online publishers in South Africa would benefit if the advertising playing field was leveled, making global companies abide by the same rules, price structures and economics faced by smaller local businesses.

Most South Africans would be shocked to know the local online advertising industry is paying taxes in SA, but a giant like Google is not, Alistair Fairweather, chief technical officer at the Mail&Guardian, told Fin24.
 
“The situation is, however, not clear-cut either way. The problem with ‘fairness’, especially regarding tax, is that it is dependent on legislation,” he said.

Google is not doing anything illegal. It is just that the SA tax laws and those in other countries simply do not take the internet into account.

Fair playing field

“We are not asking for protection, just for a fair playing field,” Geoff Cohen, CEO of 24.com, told Fin24.

Local consumers have no idea of the potential damage to the SA economy because of big players such as Google taking more than R1bn in revenues out of the country without paying tax.

“What are they putting back and to whose benefit? From a competitive point of view, how are locals able to compete?” Cohen asked.

“In the digital age, we accept that we compete with businesses from all over the world. However, it is clearly wrong that, as we invest in building a tax-paying business employing hundreds of South Africans, we are competitively disadvantaged through aggressive tax planning strategies of global businesses.”
 
Google has an office and a local workforce in SA.

“The question to ask is whether this is fair. Google can offer a service in SA, but not pay local tax, while we have to,” said Cohen.

“If Google were owned and run by a local SA entity, they would be seen as foul of local competition laws.”
 
Stuart Thomas of memeburn, a local technology website, told Fin24 that, while governments may appear to be impotent, they are trying to fight back.

Globally more and more people are asking how giants like Google are allowed to use these tax loopholes.

France, for instance, recently billed Google for years in “unpaid” back taxes.
 
"This is not acceptable and that is why, at both the European and the global level, we must ensure that tax optimisation ... can be called into question," Hollande said.

The Guardian reported that France is seeking €1bn (£830m) in tax from Google over its fiscal strategies

In Australia it has been reported that Google has refused to explain why it paid just $74 176 in Australian tax in 2011, despite making an estimated $1bn in revenue from the Australian market.
 
'The Google tax'

A legal development in Italy dubbed “the Google tax” could set an international precedent, opening the way for local taxing of Google on-line advertisements purchased in countries around the world, including South Africa.
 
The new provisions apply to Italian purchasers of online advertising, requiring them to buy only from businesses that are registered for Italian VAT payments, thus forcing them to comply with local tax laws.

“What it boils down to, is whether or not we believe companies have a duty to be ‘good citizens’ within the countries they operate in and what that might entail,” said Thomas.

“To many, paying taxes is an important part of that. After all, taxes pay for public roads, schools and a number of other services that these companies benefit from.”

He added that unfortunately, company management is duty bound to their shareholders and will always push the law to its limit.

Even the South African government intends taxing digital products and services that have so far evaded VAT.

Arthur Goldstuck of World Wide Worx, told Fin24 that local companies would then have to pay VAT on any payments to Google, for instance.

"This applies to any digital goods and services bought from South Africa," he told Fin24.

"Naturally, local authorities cannot impose income tax on Google if it is receiving the payment in the US, where it is liable for local income tax."

Google responds

In response to Fin24 a spokesperson for Google said the company is committed to bringing users quality content as quickly and easily as possible. "Which is why we partner with valued publishers around the world who choose to list themselves in Google News.

"Through these relationships, we're able to send users to news sites over 10 billion times a month from Google News and Search - each click represents a business opportunity. In 2013 we shared more than $9bn with our AdSense partners.”
 
The spokesperson said Google complies with tax laws in South Africa and every country where it operates.

"Under current rules, VAT reporting and remittance is the responsibility of our advertisers, who pay the same rate when they advertise with Google or any other company."

* Fin24 is part of Media24, a subsidiary of Naspers.

Comments
  • Frank Drebben - 2014-02-11 11:02

    R140 million is still less than Nkandla.

      Gloomy Zoomy - 2014-02-11 11:14

      lol.........We will shut this google thing down!!! Fill our pockets or we will shut this google down

      Frans Van Der Merwe - 2014-02-11 11:14

      Google did the same in the UK - they are a disgrace ! Extract from a UK Parliament Report “Google generates enormous profits in the UK. But despite an $18 billion turnover between 2006 and 2011 it paid the equivalent of just $16 million in taxes to the UK government."

      Danie Van Antwerpen - 2014-02-11 12:47

      but you have to remember they pay tax in the country they are registered in. the same if you purchase an airline ticket over the internet, they don'y pay SA tax as the transaction goes through from their bank account in the country they operate from - or at least in some cases where they don't make use of local offices.

      Adriaan Steyn - 2014-02-11 13:12

      why don't you take your 'local' 24.com company offshore and use the same tax loopholes? nothing prevents you from registering an offshore domain hosting company. So sick and tired of people wining about rubbish. Google is a multi-billion dollar company... significantly larger than 24.com and with significant global market share. Get over it and become more innovative in how you utilise your digital media to address your target audience and market.

      Amdyn - 2014-02-11 15:44

      Lol - 140 million out of taxes collected of 750 billion = 0.01%

      John Smith - 2014-02-11 16:20

      Exzactly.. I'm sorry 24.com but I'm quite happy to keep supporting goggle because its less tax money for the anc to squander.

      Open mind - 2014-02-11 20:02

      And by the way, if you get foreign companies to advertise on News24 then the revenue comes to SA and the TAX is paid here, maybe we should just expand our SA services globally and earn money from them...

      Chris Fourie-Lipman - 2014-02-12 15:17

      I have a question for Geoff Cohen, CEO of 24.com: Does Facebook pay taxes to South Africa? If not, you certainly support their advertising. Also are you aware of the fact that you have a Google+ page. You are such a hypocrite!!!

  • Jon Low - 2014-02-11 11:03

    Google creatively ducks taxes in ALL countries.

      Carla Smith - 2014-02-11 11:19

      Yes they do.

      George Wood - 2014-02-11 11:27

      Yep, got busted for it in the UK!

      Leroy Reynolds - 2014-02-11 13:17

      I see many commenting, there must be more people than I thought that are in software development and cyber law professions! Obviously knowing allot about tax laws too. You bunch are so smart must say!

      George Wood - 2014-02-11 15:17

      @Leroy, you don't have to be smart to follow the news and if you did, you would know that in June last year Google were hauled in front of the Commons' Public Accounts Committee to explain why they were actively avoiding paying UK Corporation Tax and to explain why they had allegedly paid only $16M Tax when their UK Turnover was estimated at $16B? Now I'd call being put in front of any governmental committee to explain one's actions as getting busted for it!

      Justin Pretorius - 2014-12-09 16:54

      Totally wrong. They avoid tax not evade so please don't make an issue out of the US's loopholes

  • Mariam Mirriam Benjamin - 2014-02-11 11:08

    Hmmmmm....mayB SARS 2buzziii with Juju!? Focus on Big Sharks not small possible tadpoles..just a thought. Kind regards Fighter Rose MMB??

  • oldman.vic.5 - 2014-02-11 11:34

    Gaagle & Molemo. Tax Unpractitioners Inc.

  • SimonPhoenix - 2014-02-11 11:35

    Good! Less money for the government to pilfer and waste on themselves.

      Konstabel Koekemoer - 2014-02-11 14:30

      Not good at all as it puts more pressure on individuals to pay for all the government theft and wastage.

  • Johan Grobler - 2014-02-11 11:41

    The fact of the matter is that Google has a winning recipe. Local companies tries to rip off advertisers by not having a pay by click charge. It does not pay to advertise with the local companies.

      Iszi Doe - 2014-02-11 11:57

      This ^^

      Louis Krüger - 2014-02-11 12:26

      Does this justify them not paying taxes?

  • George Wood - 2014-02-11 11:44

    They could be called the "Julius of Cyberspace"

  • Robbie Crouch - 2014-02-11 11:52

    In all fairness all online transactions should be tax free. ;-)

  • Zom Apo - 2014-02-11 12:04

    I'm amazed that with such a reputation of corruption, that people are still using their browsers - Chrome - and their operating system - Android. If they are so well known for identity fraud , how can you trust them with your personal information ?

      Leroy Reynolds - 2014-02-11 13:18

      where is the evidence, links proof? please

      Konstabel Koekemoer - 2014-02-11 14:33

      I don't trust Google at all and don't use Google+, their search enigne, Andriod or Gmail.

  • Justin Pretorius - 2014-02-11 12:09

    This regime only wants more taxes to fund the coming catastrophe with massive unemployment and the massive Zuma clan. Even if you think it is a "fair" tax, then you are simply blind to the fact the regime does not actually give a cr&p about the well-being of the economy or business. The regime is ANTI-BUSINESS!!

  • Wesley Fick - 2014-02-11 12:15

    This isn't a new thing. Facebook and Google do this. Why not start closer to home, and stop gouging so much money instead of finding new people to tax?

  • Tiger Balm Aunty - 2014-02-11 12:19

    I hope they don't have to pay this tax. This is ridiculous and unwieldy. It would also mean that the US would adopt the same strategy which would remove South African companies' advantage there. This smacks of sore grapes and the US should be a much bigger market for South African companies than South Africa is for US companies. Naspers, for example, might also be adversally affected as well as they receive online advertising revenues in many countries as well (unless there is some strategy here for them to publish such an article)...

  • King Kano - 2014-02-11 12:42

    now why sars doesnt follow google which is "big fish"?and now they persue Julius...what a story

  • sihlenyamezela.motaung - 2014-02-11 12:55

    Justine & Frank niyaphapha lezimbongolo Lezi why always mix issues nx

  • David Joffe - 2014-02-11 13:02

    Not a huge fan of some of Google's business practices, but this article's premises seem flawed. @"Google has a dominant position in the SA online market" The primary reason Google have such a dominant position is because they offer an unparalleled advertising network both in terms of reach (huge affiliate network), and targeting, i.e. they can offer better advertising relevance because of their unparalleled investment in global information surveillance (i.e. they 'know so much about everyone'). Do 24.com even have anything close? Build a better mousetrap, rather than asking government for a club to beat your competitors with. "If Google were owned and run by a local SA entity" Google offer an international service. Setting aside that modern taxation is unethical, the 'purpose' of taxes isn't even to "make a level playing field", it's to pay for requisite infrastructure: For online advertising, almost all the infrastructure is private; websites are hosted in private data centers, data carried over private networks and sent to end users via private ISPs. The notion of 'good citizen' is based on consumption of local resources (mininal here), not 'paying for Nkandla'. This is a money grab, plain and simple. If anything, the "level playing field" should be in the form of reducing the tax burden on SA companies. Google also sends at least some revenue into SA. Note, 24.com is part of Media24 - shouldn't that conflict of interest have been at least mentioned in this article?

      Martin Hugo - 2014-02-11 13:52

      Well said, businesses shouldn't have to be forced into using sub standard services that promise the world and deliver nothing.

      Tšeliso Tefo Molukanele - 2014-02-11 16:31

      wow man! your comments are refreshing and I am happy to have learned something today.

  • Werner Spreeuwenberg - 2014-02-11 13:14

    Wherher I buy sonething in person or via internet, should not make a difference. SA is to charge import taxes on products bought outside RSA. Thats how Holland is doing it.

      Konstabel Koekemoer - 2014-02-11 14:41

      If it is a physical product you do pay VAT and customes duty when it enters the country. The problem is with services, applications or digtal content. New creative laws are required to ensure that these companies pay their fair share. They are making money out of South Africa so why should they not also contribute like any other company?

  • Martin Hugo - 2014-02-11 13:54

    Local publishing houses would do well to lower their advertising prices, it is ridiculous and largely ineffective. If consumers have to pay for Google prices at the rate local publishers charge many businesses will sink. Google and Facebook are the best digital grounds for advertising locally- media houses shouldn't complain, they should compete, both in quality and pricing. Build a search engine or social network that people actually use, then we can talk again.

      Konstabel Koekemoer - 2014-02-11 14:42

      The point is that Google and Facebook should pay tax in SA just like any other company that does business here.

      Justin Pretorius - 2014-02-12 09:17

      Wise words!!

  • Willie Maartens - 2014-02-11 13:56

    Paying taxes is like feeding rats in your basement!

  • stefan.strydom.902 - 2014-02-11 15:01

    "Don't be evil" - Google motto. Seems screwing a country out of taxes due to loopholes is NOT evil. I must remember that...

  • William Hallett - 2014-02-11 15:25

    If mad malema can avoid paying TAX, so can Google!!!

  • Lesego Mtshweni - 2014-02-11 15:26

    Picking on us with these stupid e-toll cos they are being outsmarted by Google and G*d knows who else

  • Justin Pretorius - 2014-02-11 15:35

    "Giving money and power to government is like giving whiskey and car keys to teenage boys." - P.J. O'Rourke

  • Reine Marais - 2014-02-11 15:43

    The South African Tax community need to get with the program. The Internet and Internet advertising has been around for more than a decade. Time, maybe, for the government to get its act together, assuming that they can get their act together on anything.

  • Mpho Leopeng - 2014-02-11 16:59

    Hehehe, they only just started paying proper tax in their Own country, What can the bafoons in the SA government do. They don't even know how the google concept works.

  • James Smythe - 2014-02-11 18:49

    Whether or not anyone believes Google is a "good" corporate citizen or not is totally irrelevant. If the govt. wants Google to pay local taxes then ensure that the tax law is changed - but watch out for the "unintended consequences" which will ensue since the law will have to treat ALL companies with overseas status exactly the same - and that means jobs and investment could end up being threatened! Google is not, as the article seems to imply, "pushing the law to the limit". There are no "limits" to "push", there are only the provisions of the law as it stands today!

      Tariro Sianda - 2014-02-12 00:12

      What you saying makes no logic, the sale of digital content by multinationals does not create a single job locally as the servers, programmers and tech support staff will be based at the companies HQ. Since news24 can be accessed worldwide, are you saying they have created jobs in every country on ths planet..

  • Elijah Nhlanhla Kubeka - 2014-02-11 20:28

    Google is really giving everyone some lessons on tax laws.They should be told to register Google S.A.On the other why they should.The whole world is struggling to collect taxes from Google.I think this situation is also new to them.They are not running away from paying tax on purpose.South African Revenue Service should prescribe a law especially for Cyberspace companies.Tax laws are not the same across borders.What I know is that it should be taxed where the income has been derived.Good luck Jacob Zuma.I think we need to revisit the income tax laws again.They were drafted in 1962 and followed by a lot of ammendments ever since.This is a great challenge for the whole world,and a complicated situation for everyone.

  • Tlou Maffod - 2014-02-11 21:15

    Fault play by untouchables as usual

  • Chris Fourie-Lipman - 2014-02-12 15:17

    I have a question for Geoff Cohen, CEO of 24.com: Does Facebook pay taxes to South Africa? If not, you certainly support their advertising. Also are you aware of the fact that you have a Google+ page. You are such a hypocrite!!!

      Tim - 2014-11-04 09:05

      Google is generating vast revenue in SA, and not paying taxes in SA. In general, a more competitive environment is desirable, as it should drive prices down and ensure more participants in the economy, more efficiency, more innovation etc. Of course local advertising networks are asking for a more even playing field

  • Justin Pretorius - 2014-12-09 16:53

    What amuses me is the fact that Google IS NOT EVADING TAX, it is merely using loopholes in the tax system to AVOID tax! All you imbeciles who say Google is not paying taxes when it should need some education on tax. Tax avoidance is NOT illegal in countries but tax EVASION is. Now go and create your own version of Google and register overseas where you can also AVOID tax and not EVADE tax.

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